Over at vox, Simon Evenett writes:
The failure to conclude the Doha Round isn't the only drain on the credibility of the WTO and the rules-based trading system. Poor choices of dispute settlement cases are too. It appears that some are so besotted with the "power" of multilateral trade rules that they actually believe that governments will be cowed sufficiently by losing WTO disputes that they will bring themselves back into compliance with those rules. The threat of sanctions may affect the incentives to come back into compliance, but that is no guarantee that compliance will occur. In some disputes the commercial interests at stake are so big that compliance is unlikely and the magnitude of sanctions so large that their imposition would significantly disrupt the trade.
The foolishness of bringing the EU-US disputes over subsidies to wide-bodied aircraft to the WTO has been compounded by a recent case to bring a case against China on export taxes for a provision which it alone is legally bound to in its accession protocol. The latter dispute is likely to backfire, allowing the Chinese to highlight the inequities of the WTO accession process and the asymmetries in WTO rules. Moreover, a "victory" here for the plaintiffs will be pyrrhic--for it will only encourage Beijing to retaliate against the commercial interests of the plaintiffs, taking advantage of the fact that WTO accords do not cover every way to harm foreign commercial interests. Of course, the rules don't allow for the loser in a case to retaliate but expecting every government to have respect for the rules is the kind of naivety that a EU trade policy grounded in realism would avoid.
As a vehicle for advancing Europe's commercial interests in the larger emerging markets, the above considerations imply that limits of what the WTO dispute settlement system can deliver have been reached. Bringing highly controversial cases will invite retaliation against EU commercial interests from vengeful losers and will only discredit the DSU system in the eyes of developing country WTO members. Case selection should be handled very careful: "do no harm" being the operative principle. Find some other way to induce foreign governments to change their behaviour.
Claude Barfield, recalling some of his Free Trade, Sovereignty, Democracy arguments, responds:
... As long as WTO member states are promised legal victories—one party is right and the other is wrong—then there will be an ineluctable movement toward seeking absolute vindication even (or especially) where WTO rules are murky or contradictory.
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I think Evenett is on to something important concerning a viable future for the world trading system. Further, I would argue that the logic of his statement, in the context of the assignment to plot a course for future EU trade policy, provides the opportunity for a revival of Europe’s older, more pragmatic view of the role of GATT in disputes among major trading nations. Until the sweeping changes in dispute settlement instituted during the Uruguay Round, which moved the system far down the road to excessive legalism, two distinct theories of dispute settlement had existed in an uneasy combination. On one side were the “pragmatists,” who argued for a “diplomatic” approach that stressed conciliation and problem-solving over legal precision: by and large European trade officials espoused this view. As a Swiss GATT Director stated in the late 1980s: “GATT cannot be a world trade court. Conciliation is our priority; it is not our job to determine who is right and wrong.”
On the other side were—and are—the “legalists,” led by the Americans, who held that legally binding rules would produce more certainty, predictability and fairness for all GATT/WTO members. ...
Ironically, the new legalism that promised greater certainty came into being just as GATT/WTO rules vastly extended the reach of the trade regime. New rules for health and safety; regulation of services such as telecommunications, banks, insurance, securities; intellectual property; and the environment, plunged the multinational trading system into complex issues that went deep into the social and economic structures of member states. ...
Over the past decade it has become clear that deep-seated societal views in different countries and regions do not lend themselves to rapid evolution or submission to a legal demand from a WTO panel—thus, Evenett’s examples regarding large aircraft subsidies or Chinese export taxes—to which could be added GMOs, climate change, and pressure to challenge social justice issues. ...
But where pragmatism and diplomacy will be needed in the future, the current legalistic WTO system precludes and forestalls such flexibility. ..
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Change, even from Europe, will be difficult: the legal system has spawned a new set of powerful interests on the continent itself. Emulating the highly litigious U.S. society, new generations of EU trade lawyers now have a stake (earnings not least) in the system.
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In that light, attention should be paid to proposals to rein in, or at least deflect a backlash against, the current WTO dispute system. This essay is not the place to set forth such reforms in detail. But several suggestions are worth exploring as the process unfolds. First, where the texts are unclear or contradictory, panels and the AB should be allowed or even instructed to adopt the non liquet doctrine—or in effect, “it is not clear.” Invocating this doctrine would allow the judicial panels to throw the issue back to the WTO General Council or to trade round negotiations. Critics of non liquet have argued that it is prohibited because international law is necessarily “complete”—or that it is the duty of judges to step in and fill gaps. However, proponents of ‘completing’ the law and ‘gap-filling’ in the contentious areas described by Evenett reflect a dangerous technocratic myopia that will increasingly bring into question the legitimacy of the DSU process.
Alternately, the WTO could adopt a variation of the so-called “political issue” doctrine developed by the U.S. Supreme Court. The doctrine is meant to provide a means for the judiciary to avoid decisions that have deeply divisive political ramifications and thus, in the opinion of the court, should be settled through more traditional democratic processes, involving both the legislature and the executive. For the WTO, this would again drive the responsibility back to the negotiations table or to the General Council.
To me, it's the combination of the new substantive rules and binding dispute settlement that has caused the problem (assuming there is one). If it is true that the WTO can't handle certain cases, should one of these two -- the substance or the binding dispute process -- be pulled back a bit? Both Barfield and Evenett focus more on the dispute process, although the substance seems to lurk underneath a bit.
Barfield wants to pull back on the dispute settlement side of things by having the courts avoid addressing certain issues. In theory, I like his suggestions, as I am sympathetic to concerns about judicial "law-making" and would like to see more "legislative" or "executive" involvement in making the rules. In practice, though, while it would be a great discussion to have, I think it would be very difficult to come up with a workable proposal on this issue that Members (or anyone, really) could agree on.
Evenett focuses on a different aspect of the dispute settlement process (although perhaps the substance is involved as well, at least to some extent). In particular, he seems to be concerned about cases that are too big in terms of the amounts involved (aircraft subsidies), and cases that will not be implemented if successful and could invite retaliation (Chinese export restrictions).
As a general matter, he appears to be arguing that Members should try hard to recognize when particular cases are too controversial to be resolved at the WTO. That seems like a reasonable suggestion. There are a variety of reasons why a successful WTO complaint is not likely to achieve compliance. Governments should be aware of this, and perhaps not overstress the system with such complaints. On the other hand, sometimes it's hard to know in advance if a complaint will succeed (in the sense of achieving compliance). There is a lot of uncertainty, and you won't know for sure unless you try. In addition, if respondent countries know that they can avoid a complaint against them by emphasizing the domestic importance of the issue, suggesting that they will retaliate, etc., the WTO dispute settlement process will be seriously undermined. So, I would be cautious about suggestions that WTO complaints be reined in on this basis. This may only apply to the most extremely contentious of cases.
With regard to the cases he mentions, I'm not sure how problematic these examples really are. I know that a lot of people are skeptical of a resolution to the Airbus-Boeing dispute through litigation, especially given the non-resolution to the Bombardier-Embraer dispute. But I'm going to wait and see how the final panel/Appellate Body reports in the two aircraft cases look before making a judgement there. It may be possible that the results of the WTO dispute process provide a realistic framework for a negotiated solution, one that would not have been possible without litigation. Or, they may not, and a lot of money and resources will have been wasted. We shall see.
On the Chinese export restrictions case, perhaps his concern here involves the substance a bit, in the sense that he fears China will point to the imbalance in substantive obligations taken on as part of the accession process. That is possible, but it seems to me that everyone claims inequities, so I'm not sure China doing it here will have much impact. And if China's response to an adverse finding is to take protectionst actions of its own, well, they can try to do it in a way that doesn't violate WTO rules as he suggests, but some of the rules are quite broad.
Finally, on the general issue of certain substantive areas of WTO law being controversial and perhaps not very suitable for WTO dispute settlement, Barfield points to "GMOs, climate change, and pressure to challenge social justice issues." I agree that there are areas of substance that are very difficult for the WTO dispute process to handle. Defining those areas has not been easy, though, as it is hard to find agreement on what should be in or out.
To sum up, I think these are great issues for WTO Members to think and talk about. However, it may be hard to find solutions that anyone can agree on.
